What Is a Stock Purchase Agreement?

A Stock Purchase Agreement (SPA) is a legally binding contract used when one party buys shares of a company from another. Unlike an asset purchase, where a buyer cherry-picks certain assets, an SPA means the buyer is stepping into the shoes of the current shareholder, acquiring both ownership and a stake in the company’s future (and sometimes its baggage).

SPAs are most commonly used in private company transactions, where shares aren’t traded on public markets. They’re showing who’s buying, who’s selling, how many shares are changing hands, what warranties are made, and what happens if things go sideways.

Why does this matter? Because in private deals, there’s no stock exchange to fall back on for protections. That means the contract is the safety net—it defines the rules, manages the risks, and ensures both sides know what they’re walking into.

Whether you’re selling your startup to a new investor or consolidating ownership with a co-founder, a well-drafted stock purchase agreement keeps everything above board and future-proofed.

Stock Purchase Agreement for Private Companies

Unlike public companies, where shares are easily bought and sold on an exchange, private companies operate behind closed doors. That means any share transaction needs a custom agreement to define who gets what, how much, and under what terms.

Some important parts of SPA for private companies are detailed representations and warranties, clauses about non-compete or confidentiality, and rules around post-sale issues.

Private company SPAs are especially common in:

• Founder exits or buyouts
• Mergers or acquisitions (M&A) between small to mid-size firms
• Private equity or VC-led secondary transactions
• Ownership restructuring among partners or shareholders

👉 Because there’s no public reporting or standardized oversight, private company deals rely heavily on the contract itself.

Stock Purchase Agreement vs Asset Purchase Agreement

A stock purchase agreement (SPA) and an asset purchase agreement (APA) might seem similar but they actually structure the deal in fundamentally different ways.

Stock Purchase = Buying the Entity

In an SPA, the buyer purchases shares of the company, usually from an existing shareholder. This means they’re acquiring the company as-is, including:

• Its assets and liabilities,
• Existing contracts, employees, and legal obligations,
• Its corporate identity and structure.

Think of it as taking over the house with everything inside (even the creaky floorboards and that dusty couch in the attic).

Asset Purchase = Picking What You Want

In contrast, an APA allows the buyer to choose specific assets or parts of the business to acquire, like customer lists, equipment, or intellectual property, without assuming full ownership of the company itself.

This route is often preferred when buyers want:

• To avoid existing liabilities,
• To cherry-pick profitable segments of the business,
• Or when tax considerations make it more attractive.

Asset Purchase Agreement

An Asset Purchase Agreement (APA) is a legal contract that defines the terms under which a buyer acquires specific assets from a seller. Unlike a stock purchase, where the entire company (including liabilities) is transferred, an APA allows buyers to selectively acquire assets—such as equipment, intellectual property, or customer lists—while leaving behind unwanted liabilities. Businesses use APAs for their flexibility, liability protection, and potential tax benefits, making them a preferred method for structuring acquisitions with minimal risk exposure.

Our Asset Purchase Agreement template is specifically designed for software acquisitions, covering key aspects like intellectual property rights, licensing terms, and liability protections. However, it is fully customizable and can be adapted for other asset types, such as equipment, real estate, or digital assets. With built-in smart features like electronic signatures and AI-powered contract review, this template simplifies transactions while ensuring legal compliance. Save time, reduce risks, and start your APA today!

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Which One’s Better?

It depends.

• SPAs are generally simpler when the buyer wants the entire company intact, and continuity (like keeping the same contracts and employees) is important.
• APAs are better for buyers who want to limit exposure, especially when the seller’s business comes with financial skeletons or outdated obligations.

Both require careful legal drafting, but SPAs tend to be more common in private company sales, especially when the goal is a clean transition of ownership—warts and all.

Key Components of a Stock Purchase Agreement

Parties Involved in a Private Share Transaction

Every stock purchase agreement begins by identifying the key players. In a private company setting, the roles are usually straightforward but crucial.

• Seller(s): These are the current shareholders transferring their ownership. It could be a founder, co-founder, investor, or group of employees holding equity.
• Buyer(s): The individual or entity acquiring the shares. This could be a new investor, another company, or even an existing shareholder buying out others.
• Company: Even though the company itself isn’t buying or selling shares, it’s often a third party to the agreement, especially when certain corporate consents or approvals are required.

Scope of Share Transfer (Full vs Partial Ownership)

Not all stock purchases involve the entire company changing hands. That’s why a well-drafted SPA clearly spells out the transfer of ownership clause to determine how much ownership is being transferred and what that means for control, decision-making, and responsibilities.

Full Ownership Transfers

In this scenario, the buyer is acquiring 100% of the outstanding shares. This gives them total control over the business, including:

• Decision-making authority
• Access to all assets and intellectual property
• Inheritance of all liabilities and obligations

It’s common in exit scenarios where founders are stepping away entirely, or in strategic acquisitions where one company absorbs another.

Partial Ownership Transfers

These deals involve the sale of a portion of the shares, leaving the company with multiple shareholders. This is typical in:

• Secondary sales by early investors
• Equity buy-ins by new partners or employees
• Minority investments by private equity or venture firms

In such cases, the SPA often includes:

• Shareholder rights and restrictions (e.g., voting power, rights of first refusal)
• Drag-along/tag-along clauses
• Provisions for future funding or exit planning

Representations and Warranties

Representations and warranties are statements of fact made by both parties, typically focusing more on the seller. They paint a picture of the company’s current state and recent history.

Examples include:

• The company’s financial statements are accurate and up to date
• There are no pending lawsuits or undisclosed liabilities
• The seller owns the shares outright and has the right to sell them
• All necessary corporate approvals for the sale have been obtained

Buyers rely heavily on these assurances to assess risk. If any turn out to be false, it could trigger legal claims or indemnification down the line.

Covenants, Indemnification & Post-Sale Protections

In private company stock deals, several provisions help ensure the agreement holds up after closing, especially when there’s no public oversight. These include:

Covenants

Stock purchase agreements often include covenants, a promises about what parties will (or won’t) do leading up to and following the transaction. In private company sales, it’s common for:

• Sellers to agree not to solicit clients or employees
• The company to promise not to take on new liabilities before the deal closes
• Both sides to cooperate during the transition

Indemnification & Liabilities

The indemnification provisions & liabilities section is critical in private share transfers. Here, sellers agree to compensate the buyer for any unexpected losses, like hidden tax debts or undisclosed legal risks. Buyers, in turn, accept responsibility for the company’s existing obligations, making this clause essential to manage future risk.

Release Provisions

Release provisions offer closure. When a seller exits entirely, they typically release the company from future claims. It’s a way to avoid post-closing conflicts and make the change in ownership legally final.

Confidentiality & Non-Compete

Private businesses often include strong confidentiality and non-compete clauses. These prevent the seller from leaking sensitive info or starting a competing business right after the sale—especially important when the seller has deep ties to the company’s market or customer base.

How the Deal Comes Together: Key Agreement Details

How the Purchase Price Is Set and Paid?

In private deals, there’s no stock ticker to guide the price. The purchase price is typically negotiated between the buyer and seller based on valuation models like revenue multiples or EBITDA. The agreement outlines whether the payment is made upfront in full, split into installments, or tied to future performance through mechanisms like earn-outs. Adjustments for things like debt, cash, or working capital may also affect the final figure at closing.

What Happens to Employee Benefits and Insurance After the Sale?

Employee-related provisions often vary depending on the nature of the deal. In some cases, the buyer commits to maintaining existing employment contracts and benefit programs, at least for a transition period. In others, the agreement may allow for renegotiation of terms or integration into the buyer’s systems. Either way, the SPA should spell out what happens to health insurance, stock options, and retirement plans to avoid disruption and retain key staff.

What Each Party Needs to Deliver at Closing?

Closing is when the deal becomes real. To finalize the transfer, both sides typically need to deliver specific items like signed stock certificates, board resolutions, payment confirmations, or third-party consents. These requirements are often summarized in a closing checklist or schedule attached to the SPA, giving everyone a clear roadmap of what to bring to the table.

When Can the Deal Be Cancelled?

Deals can fall apart, and the stock purchase agreement should explain what happens when they do. Most include a termination clause that allows either party to walk away if key conditions aren’t met, such as a breach of agreement, missed approvals, or a failure to close by a certain date. Having this clause in place provides a clean legal exit if things don’t go according to plan.

🔦 Legal Spotlight: When Elon Musk tried to back out of buying Twitter after signing a $44 billion stock purchase agreement in 2022, things got messy fast. He claimed Twitter misrepresented user data, especially bot accounts, but the agreement didn’t give him much wiggle room. Twitter sued to enforce the deal, pointing to clauses around “material adverse effects” and breach of reps and warranties. With a Delaware trial looming and legal odds stacking up, Musk eventually followed through and closed the deal. So, once an SPA is signed, you can’t just walk away because you’ve got buyer’s remorse.

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Stock Purchase Agreement Templates & Examples

Looking for a ready-to-go agreement that actually covers what private company transactions need? Our stock purchase agreement template is built for exactly that: clear, structured, and robust enough for founder exits, investor buyouts, or full-on ownership transfers.

The template includes critical elements like:

• Defined roles for buyer, seller, and company
• Detailed purchase price and closing deliverables
• Built-in clauses for representations, warranties, indemnification, benefit plans, and confidentiality
• Sample language for releases, resignation letters, and transition services
• Exhibits and schedules for assignments and post-sale obligations

What makes this template stand out? It’s fully integrated with fynk’s contract platform, so you’re not just filling out a form, you’re also streamlining the whole deal process. You can easily adapt it using:

• Customizable templates with dynamic fields for fast personalization across deals
• AI review playbooks that flag red flags like missing termination clauses or risky warranties
• Redlining & commenting tools for efficient negotiation and internal review
• and many more features …

Whether you’re finalizing a founder buyout or managing multiple shareholder exits, this template gives you the legal backbone and flexibility to close the deal with confidence.

Give it a free try now!

FAQs

Stock Purchase Agreement

A Stock Purchase Agreement (SPA) is the go-to document for transferring ownership in a company, especially in private business deals. It spells out the terms of the sale, defines who’s getting what, and protects both parties from post-deal surprises. Whether the sale is full or partial, an SPA ensures that everyone’s on the same page legally and financially.

Our stock purchase agreement template tailored for private companies makes it easy to get started. It’s fully customizable, packed with placeholder language for key terms, and built for real-world use. Whether you're handling founder exits, investor buy-ins, or internal restructures.

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Who gets the cash in a stock purchase agreement?

In a stock purchase agreement, the selling shareholder(s) receive the cash in exchange for their shares. The payment doesn’t go to the company itself, unless the company is the one selling treasury shares, which is less common in private deals.

What is the difference between APA and SPA?

A Stock Purchase Agreement (SPA) involves buying shares of a company, effectively transferring ownership of the business entity itself. An Asset Purchase Agreement (APA), on the other hand, involves buying selected assets (like equipment, contracts, or IP) without acquiring the full legal entity.

Can I write my own purchase agreement?

Yes, you can write your own purchase agreement, but it’s risky unless you have legal experience. It’s best to use a customizable template or seek legal guidance to ensure your agreement covers key elements like warranties, liabilities, and closing conditions.

What is a restricted stock purchase agreement?

A restricted stock purchase agreement is used when issuing shares that are subject to vesting or transfer restrictions. These agreements typically outline conditions like time-based vesting or performance milestones and are common in startup equity arrangements.

Are founders given restricted stock purchase agreements?

Yes, founders often receive restricted stock through these agreements. It allows the company to impose vesting schedules, so if a founder leaves early, unvested shares can be repurchased or forfeited, protecting the company and other shareholders.

Are stock purchase agreements required for formation of corporation?

Stock purchase agreements are not required to form a corporation. Formation involves filing incorporation documents with the state. However, SPAs become necessary later when shares are actually issued or transferred between parties.

Can a director approve his own stock purchase agreement?

Generally, no—a director can’t unilaterally approve their own deal without oversight. Corporate governance typically requires approval by disinterested directors or shareholders to avoid conflicts of interest and ensure the transaction is fair and valid.

Do I need a stock purchase agreement for warrants?

No, warrants usually come with their own specific agreement called a warrant agreement. However, they might refer to the SPA if the shares being acquired later are subject to terms already laid out there.

Do you need shareholder consent for a stock purchase agreement?

In many private companies, shareholder consent may be required, depending on the company’s bylaws or an existing shareholder agreement. Some companies also require board approval before any stock transfer becomes valid.

Does a stock purchase agreement need a witness?

Typically, a witness is not required for a stock purchase agreement to be valid, especially in the U.S. or EU jurisdictions. But local laws, internal corporate policies, or high-value deals may still recommend it for added legal formality.

Who signs a restricted stock purchase agreement for a CEO?

A restricted stock purchase agreement for a CEO is typically signed by a disinterested board member or a corporate officer who has authorization. This ensures proper governance and avoids any appearance of self-dealing.